Which investment bank popularized the use of junk bonds in the 1980s?

Drexel Burnham Lambert popularized the use of junk bonds in the 1980s. Its high-yield department, led by Michael Milken, transformed below-investment-grade debt from a specialized product into a major source of corporate financing.

Before Drexel’s rise, most junk bonds were “fallen angels”—bonds originally issued by companies with investment-grade ratings that were later downgraded. Milken promoted a broader market for new high-yield bonds issued by companies that had never received top ratings. Drexel connected these issuers with investors willing to accept greater risk for higher returns.

The bonds became especially important in leveraged buyouts and hostile takeovers. They allowed corporate raiders and private-equity firms to assemble large acquisition offers without relying entirely on traditional bank loans. Deals involving companies such as RJR Nabisco helped make junk bonds a defining feature of 1980s finance.

Drexel did not invent every form of high-yield debt, so “popularized” is more accurate than “invented.” The firm’s dominance later became a liability: investigations, fraud charges, Milken’s conviction and a collapsing market helped bring about Drexel’s 1990 bankruptcy.